Court seeks former Jefferson County landowners eligible for $7.5 million from 2007 lawsuit

A special master is trying to track down and notify former Jefferson County property owners who may be eligible to share some $7.5 million remaining in a redemption fund set up in 2008 as part of a lawsuit, court records show.

"We're going to find out who should get the rest of the money," said Circuit Judge Michael Graffeo.

In 2008, Graffeo ruled in a class-action lawsuit that Jefferson County improperly benefited financially in some cases when bids on real estate sold to recover back taxes exceeded the amount due.

He ordered the county to pay $37.4 million in principal and interest from the excess bids to a class of some 3,300 former owners who did not redeem their property after tax sales from 1994-2007 by paying the amount owed and penalties.

People who redeemed their property sold during that period got the excess money from their tax sales, after paying 12 percent interest on the money, court records show.

The deadline to file a claim for the money was June 2009. By early 2011, all but a handful of those claims had been paid, court records show.

The plaintiff lawyers, who were awarded $10.2 million in fees and expenses, were discharged after Graffeo ruled in March that they had met their obligation to ensure clients got the money they were due.

But with nearly 1,000 excess bids totaling $8.9 million remaining unclaimed, Graffeo appointed Birmingham lawyer William S. Hereford as special master in March to complete the task, court records show.

"We're going to make another run at it with the special master, who is an expert in real property and redemption," said Graffeo, who said he was commenting on the suit only because he has issued a final order that was not appealed and the case is in what he called administrative wind-down.

Hereford has since identified 18 claims that were pending, which Graffeo has been whittling down. Intensive research will be required to identify and send notices to the rest, court records show.

Hereford also found that the redemption fund the county was maintaining was underfunded by $800,000, court records show.

Last week, Graffeo froze the accounts holding the redemption fund until the county treasurer can provide a reconciliation. Hereford must report the progress of the reconciliation to Graffeo by Sept. 9, court records show.

'Unauthorized loan'

Jefferson County's annual property sales on the courthouse steps can generate more than the back taxes due when bidding gets intense, court records show.

County officials adopted the policy in the mid-1990s of putting the excess money from the bids into the county treasury. It would pay out the excess money only when the original owner redeemed the property by paying the back tax, 12 percent interest on that amount, and another 12 percent interest on the excess paid.

Those who did not redeem their property were not notified when it sold for more than the taxes due, nor told how to claim the excess money without going through the redemption process, records show.

The lawsuit challenging the county's policy initially was filed in federal court in 2005, and refiled in state court in 2007.

In striking down the policy, Graffeo ruled that state law required all excess money from the sales to be paid to the property owner before the tax sale. The county's policy was unconstitutional, amounting to an "unauthorized loan" against the owner's property without due process, the judge ruled.

State law allows Jefferson County to lay claim to the remaining money in the redemption fund, but the county commission has not done so, court records show.

After the commission passes an ordinance claiming the money, the county must honor eligible claims from former property owners for 10 years, but any money left after that becomes the county's property.